Regular savings accounts

A regular savings account offers an easy way to save little and often – with a high rate of interest as a reward.

It works like this: you put in a small sum of money each month (up to a maximum amount allowed) and you could earn a greater interest rate than you would get with an ordinary savings account.

However, you’ll only get this rate on the money in the account each month – not on the total amount you save across a year.

These types of savings accounts are often only available from a bank or building society if you already have an existing current account with them. However, a few regular saver accounts are open to new customers too.

And keep in mind that some regular savings accounts don’t allow you to withdraw your money for 12 months, so make sure you won’t need it during this time.

Regular savings account interest rates can be fixed or variable. The highest AERs (interest rates) tend to be variable but this means it could go down as well as up.

Fixed rates give you more certainty, but the interest offered might be slightly lower.

It’s important to remember that the actual amount of interest you’ll earn is likely to be around half the advertised rate.

That’s because the interest is calculated on the balance in your account as it builds month by month, not on the final total.

For example:

You open a regular savings account offering 5% interest, then deposit £100 each month over the next 12 months.

At the end of the term you might expect to have £1,200, plus £60 in interest – 5% of £1,200. In reality, you may only have earned around half that amount – around £32.

This is because you’ll have only had the full £1,200 in your account during the last month. In the first month, you’ll only earn interest on £100, and so on as the amount grows over the year.

A regular savings account might be a good option if you:

• Want to build up a nest egg

• Would like to get into the habit of saving each month

• Are saving up for a special event, such as a holiday or wedding

• Want more interest than you can get with an ordinary savings account

• Can commit to saving a minimum amount each month.

Regular savings accounts tend to have stricter terms and conditions than a straightforward, easy-access savings account. For example, most have rules on how much you can put in and take out.

You’ll also need to be disciplined and commit to depositing a certain amount each month across a year.

A regular savings account probably won't work for you if you can't afford to set aside a monthly sum, and it's not a good place to keep emergency funds if you need money in a hurry.

Regular savings accounts let you put away specific amounts each month for a fixed period. Accounts differ between providers, but typically:

• You'll need to deposit a minimum amount each month, which could be as little as £10

• There’s a maximum monthly deposit limit, which could range from £50 up to £500

• If you deposit less than the minimum amount, you may not qualify for the full interest rate

• With some regular savings accounts, you might have to save the same amount each month

• You may have to set up a standing order to transfer the cash from your current account

• Most regular savers only last for a limited period, often a year

• Most regular savings accounts only offer the headline rate for a year, sometimes two. Once the deal ends, your money is likely to be moved into a current account or an easy access saving account, which may offer little or no interest

• Some banks may close your regular savings account if you don’t make the required monthly deposit. Others will let you skip one or two months without a penalty

• Some regular savers allow you to take money out, but they might lower your interest rate. Others don’t allow you to make any early withdrawals at all.

It’s important to read the terms and conditions carefully before deciding if a regular saver account is right for you. This is especially true if:

• You’re not sure how much deposit you can commit to each month

• You may need easy access to your money while you’re saving.

If you’d prefer to have a more flexible method of saving, an easy access savings account might be a better option.

Regular savings accounts can be worth considering if you’re able to save consistently each month and don’t need quick access to your money. They offer higher interest rates than easy access accounts, rewarding regular deposits over a fixed term.

But they do come with conditions that may not be ideal for everyone. You may need to deposit a set amount of money each month to earn the top rate, and some accounts may limit or block withdrawals. That means they can be better suited to short-term saving goals rather than emergency funds or lump sums.

If flexibility is a priority for you, it may be worth comparing other types of savings accounts to find the best fit for your needs.

The most competitive regular savings account rates are often reserved for existing customers. It’s one of the ways that banks and building societies reward loyalty.

But you can also find monthly savings accounts paying decent interest which are available to all customers.

Just be aware that the best regular saver accounts offering high interest often have the strictest criteria. For example, the interest rate might be reduced if you don’t save every month or if you need to make a withdrawal.

How much you have to put in depends on the account you choose. Most regular saver accounts expect a minimum of at least £10 a month, while some insist instead that you save the same fixed amount each month.

If you’re confident you can put in a bigger monthly sum, it’s worth looking for a bank that offers a higher monthly limit, even if the interest is slightly lower.

Some banks let you skip a couple of months without it affecting your interest. Others might cut your rate or even close your regular savings account if you miss a monthly payment.

A regular savings account isn’t for everyone, especially if you need flexibility or might want to dip into your money every now and then.

That's why it's worth doing a regular savings account comparison to see what else is out there. Depending on how you like to save, one of these options could be a better fit:

Instant access savings account

Interest rates are typically lower than regular saver accounts, but you can take your money out whenever you want.

High interest current account

An everyday bank account with a debit card for spending that also pays you interest on your credit balance. You’ll usually have to pay in a certain amount each month to earn the interest rate.

Cash ISA

A tax-free savings account. You can get regular savings accounts that are also cash ISAs. This means the interest you earn will be tax-free. Alternatively, you could opt for an instant-access cash ISA if you want more flexibility with your deposits and withdrawals.

Find out more about different ways to save.